Investors are betting on biobased manufacturing companies that use microbes to make valuable chemicals, but it’s becoming harder for startups to stand out as the field becomes more crowded.
On Tuesday, Provectus Algae, an Australian company that engineers algae to produce valuable chemicals, announced that it has raised $11 million to increase production capacity and support research. Last week, Zymochem, which designs microbial processes to produce industrial chemicals and materials, raised $4 million in seed financing. And earlier this month, DMC Biotechnologies raised $34 million. The company says it is producing commercial quantities of its first product, the amino acid L-alanine.
Those announcements follow big investments earlier this year in biobased manufacturing companies like Solugen, Genomatica, and Bota Bio. The consulting firm Cleantech Group reports that biofuel and biochemical companies have raised more than $1 billion in investment in 2021 so far.
Harini Venkataraman, an analyst who covers biobased manufacturing in the food and beverage industry at Lux Research, says the space is getting crowded. She says it’s no longer enough to engineer a microbe that makes an interesting molecule at lab scale. Companies have to prove that their technology works at large scale and that customers actually need their products.
She points to Zymergen as a good example. The company raised half a billion dollars through an initial public offering in April, even though it hadn’t sold any products. A few months later, Zymergen reported that it had overestimated demand for its first product and that it had technical problems. Many companies have developed innovative ways to make biobased chemicals in the lab, but Venkataraman says it’s the ability to make the leap to commercial-level production that makes them successful.
“The only thing that you can do better is either make it more scalable or make it more cost-efficient,” she says.
Provectus CEO Nusqe Spanton says that’s what his company plans to do with algae. Many other companies modify yeast to make chemicals, but Spanton says algae is a better candidate in some ways.
Provectus searches through the thousands of species of algae to find one that already has most of the molecular pathways needed to make a desired product. Then the company does a little bit of genetic engineering to turn the microbe into a chemical factory and programs a bioreactor to simulate its natural environment. Spanton says lightly engineered algae is easier to grow than heavily engineered yeast.
“Every species requires different lighting and different environments,” he says “When you understand how that environment works, you can then recreate it very rapidly and . . . grow it at scale.”
In the early 2000s, several large oil companies tried to use algae to make biofuel, but most of the projects didn’t pan out. Provectus plans to focus on high-value products in the food, agriculture, and pharmaceutical industries.
DMC Biotechnologies is hoping to prove that its amino acids, often used to supplement livestock feed, can provide better supply-chain security than imported products, which saw shortages during the COVID-19 pandemic. The US imported more than 8 million kg of alanine from China last year, according to data from the US International Trade Commission.
DMC CEO Matt Lipscomb says it would be feasible to build biobased manufacturing facilities closer to the companies that use those chemicals, shortening the supply chain. “It just so happens that fermentation-based technologies fit exceptionally well within existing agricultural supply chains, so I think we can be a part of that,” he says in a video announcing the $34 million investment.
Joško Bobanović oversees an industrial biotechnology investment fund at the venture capital firm Sofinnova Partners, which recently invested in DMC. He says it’s not always easy to distinguish winners from losers in a fashionable field like biomanufacturing.
“Having a bit of experience, like we do, helps you not jump on every single thing,” he says.
Bobanović says it’s normal for the business cycle to go up and down as a new industry matures, but he’s confident that biomanufacturing will make daily life less carbon-intensive. That’s a critical need, he says, which means investment should keep flowing.